How much can we borrow?

moon2 · 10-12-2020 1:51pm

Wanderer78 wrote: »

the poster is absolutely spot on, growing public debt is absolutely fine, provided your economy can indeed continue to service these debts.

I feel like the second half of your sentence is being casually ignored throughout this entire thread.

The truism being repeated is "everything is fine as long as it's fine". Yes, taking a loan is fine as long as you can pay it back.

At what point will the debt we take on *no longer* be serviceable? At what interest rate would the current irish national debt become unsustainable? When will it begin to negatively impact our economy, our pensions, our ability to improve national infrastructure, or our day to day lives.

Edit: I assume the calculation being performed by our government is that $1 borrowed today will result in the county being $1.2 better off - i.e. borrowing will result in economic growth large enough to compensate for the loan and interest. What rate of growth do we need to sustain for that to hold true?

Arthur Daley · 10-12-2020 1:52pm

Geuze wrote: »

First, are you sure banks are the main buyers?

Read this:

https://www.ntma.ie/uploads/general/Investor-Presentation-November.pdf

see slide 30.

Thanks, I don't know what IGB stands for but I'd suspect Eurozone pensions and Insurance companies are big holders of these debts. Although, again Insurers (and indeed pension funds) can only hold so much of zero (or near zero) coupon debt, they have a return to make like everybody else.

Seth Brundle · 10-12-2020 1:53pm

Arthur Daley wrote: »

You know what gets me about all these discussions about debt is that it's a conversation without the creditors ever really playing a part in it. It is like a conversation in the front seats of a car, with the creditors sitting in the back, arms folded while it's decided what to do about the problem child.

According to a post several posts up, the creditors are largely the Irish citizens, and then various European citizens via the ECB.

In particular the creditors are future pensioners, who keep seeing the state default, yes default, on their pensions by pushing the pension age out. Continually pushing the pension age out because you cannot honour your commitments because you've taken on too much debt and too many commitments is a fairly major negative effect to us pensioners.

You make it sound like you want the citizens to have a voice in all of this.
The citizens are ignorant in terms of national financial management and shouldn't be let anywhere near this. It would become politicised just like water charges.

Arthur Daley · 10-12-2020 1:59pm

Seth Brundle wrote: »

You make it sound like you want the citizens to have a voice in all of this.
The citizens are ignorant in terms of national financial management and shouldn't be let anywhere near this. It would become politicised just like water charges.

Defaulting on pension ages and commitments is politicised whether you like it or not. And once it ever emerges the cupboard is bare, the water charges demos will be a picnic in comparison.

Padre_Pio · 10-12-2020 2:02pm

Seth Brundle wrote: »

You make it sound like you want the citizens to have a voice in all of this.
The citizens are ignorant in terms of national financial management and shouldn't be let anywhere near this. It would become politicised just like water charges.

People in general don't look further than their own wallets and can't make impartial decisions.

I would vote for any motion that doesn't financially hurt me, but so would everyone else.

Brussels Sprout · 10-12-2020 3:47pm

Arthur Daley wrote: »

In particular the creditors are future pensioners, who keep seeing the state default, yes default, on their pensions by pushing the pension age out. Continually pushing the pension age out because you cannot honour your commitments because you've taken on too much debt and too many commitments is a fairly major negative effect to us pensioners.

The reason the pension age gets pushed out is twofold:

People are living much longer
There are proportionately fewer younger people to support the pensioners now due to a falling birth-rate

That demographic shift is happening all over the western world and as a result pension ages are being pushed out.

Arthur Daley · 10-12-2020 3:53pm

Brussels Sprout wrote: »

The reason the pension age gets pushed out is twofold:
People are living much longer

There are proportionately fewer younger people to support the pensioners now due to a falling birth-rate

That demographic shift is happening all over the western world and as a result pension ages are being pushed out.

But we have increases in population almost every year, due to migration in.

I know the next line will be that some of the population increase is due to people getting older, but there is a limit to that, yes people are living longer on average but that is not the main driver of the population increase.

Also, zero coupon bonds are not going to help here, and there is a limit to how much pensioners can fund zero coupon debt issued by government.

Geuze · 10-12-2020 3:55pm

Arthur Daley wrote: »

Thanks, I don't know what IGB stands for but I'd suspect Eurozone pensions and Insurance companies are big holders of these debts.

IGB is new to me too.

IGB = Irish Govt Bond

Podge_irl · 10-12-2020 5:09pm

Arthur Daley wrote: »

But we have increases in population almost every year, due to migration in.

I know the next line will be that some of the population increase is due to people getting older, but there is a limit to that, yes people are living longer on average but that is not the main driver of the population increase.

Also, zero coupon bonds are not going to help here, and there is a limit to how much pensioners can fund zero coupon debt issued by government.

You have the causality completely backwards. Borrowing is not causing us to limit pensions, massive increases in pension payments are necessitating borrowing (among other things obviously).

The demographic maps is changing rapidly and the ratio of workers to pensioners is constantly decreasing. The pension age will need to increase (and should have already) because of demographics and nothing more.

In essence, you are borrowing to pay for pensioners now under the assumption that increased GDP and inflation will pay for it in the future.

Harry Palmr · 10-12-2020 5:51pm

The Kaiser Bismarck chose 70 for the introduction of the state pension as it was about when most people dropped dead in the 1880s, it was lowered to 65 in 1917.

That the retirement age has hardly shifted in generations as EVERYTHING else has changed is one of the great missteps of the last century.

Arthur Daley · 10-12-2020 6:14pm

Harry Palmr wrote: »

The Kaiser Bismarck chose 70 for the introduction of the state pension as it was about when most people dropped dead in the 1880s, it was lowered to 65 in 1917.

That the retirement age has hardly shifted in generations as EVERYTHING else has changed is one of the great missteps of the last century.

Appreciate that, but there were a lot of things that went on in the 1880s that we hoped we'd have moved on from. Work until you drop is not going to be acceptable to the masses and rightfully so.

Also, if pensions cannot be funded, then how the hell are they going to introduce and pay for Universal Basic Income. Automation and AI are going to leave a lot of people without jobs in the next decade, some of whom will be effectively done at 40 or 50, never mind 60 or 70.

Arthur Daley · 10-12-2020 6:20pm

Podge_irl wrote: »

You have the causality completely backwards. Borrowing is not causing us to limit pensions, massive increases in pension payments are necessitating borrowing (among other things obviously).

The demographic maps is changing rapidly and the ratio of workers to pensioners is constantly decreasing. The pension age will need to increase (and should have already) because of demographics and nothing more.

In essence, you are borrowing to pay for pensioners now under the assumption that increased GDP and inflation will pay for it in the future.

We are just trying to follow the money trail here. I'm assuming that Irish and Eurozone pensions and insurers are big buyers of this Sovereign debt that is being issued. If they aren't it would be useful to know who is making up a large share of the market for Irish Government debt.

Pensions need yield, and it needs to be real yield to keep pace of inflation. If pensions were queuing up to buy Sovereign debt at zero coupon and the issuer has the 'assumption' (or hope) of inflation to 'pay for it' then the Government are selling the pension funds a pup, and the creditors will be most displeased when they have negative real returns, thereby making the funding gaps even worse.

Podge_irl · 10-12-2020 7:10pm

Pension funds will be invested in a number of things, but sovereign bonds will most certainly be one of them due to the low risk.

mcsean2163 · 11-12-2020 1:32am

https://amp.scmp.com/economy/china-economy/article/3112343/us-debt-china-how-big-it-and-why-it-important

What would happen in US/ China trade war?

China sells 5% of all US bonds, who buys them? I'm guessing interest rates go up and then in Europe too. What if they went to 5%? Could we afford to pay 5% on short term debt as it matures? Could we pay 5% on 223 billion? We can't print our own money. What happens if some multinationals also leave?

Ireland

FreudianSlippers · 11-12-2020 1:25pm

moon2 wrote: »

I feel like the second half of your sentence is being casually ignored throughout this entire thread.

The truism being repeated is "everything is fine as long as it's fine". Yes, taking a loan is fine as long as you can pay it back.

At what point will the debt we take on *no longer* be serviceable? At what interest rate would the current irish national debt become unsustainable? When will it begin to negatively impact our economy, our pensions, our ability to improve national infrastructure, or our day to day lives.

Every single IGB yield is negative at the moment other than 30y maturity which is 0.267%, so with respect, the question in itself is effectively irrelevant. The whole point is to sell bonds now and "refinance" at the appropriate times.

Edit: I assume the calculation being performed by our government is that $1 borrowed today will result in the county being $1.2 better off - i.e. borrowing will result in economic growth large enough to compensate for the loan and interest. What rate of growth do we need to sustain for that to hold true?

That's the model that I, for the most part, subscribe to but I don't agree at all that our finance ministers for the past decade+ have believed that. I'd borrow and spend massive amounts on infrastructure projects and particularly green energy that we might be able to sell to other countries in the future. There's no good reason we can't be the Norway of renewables.

ice.cube · 11-12-2020 5:14pm

FreudianSlippers wrote: »

Why? IMF already has multi-currency reserve. The USD has historically been one of the most stable currencies and nothing has changed there. US debt is largely short-term, so we'd need to see a massive depression in the US which didn't materially impact other countries to see a realistic reason to move away from the USD as the main currency reserve; but as I said, there are already other reserve currencies.

If we're talking hypothetical in the longer term, maybe crypto could potentially be a new reserve... that's about as realistic as a massive move away from USD in the foreseeable future.

Agreed it isn’t going anywhere anytime soon but do you think it will remain in place long term? The big question mark is on a suitable alternative as I stated earlier.

The Fed attempted to take their foot off the printing press pedal in 2019 however were unable to successfully do so. This year has obviously been unprecedented but for every $1 the government spends .50c is basically money created out of nothing. I would have doubts on how they can bring these massive deficits into line in the short to medium term.

Throw in the trade deficits and they are basically creating dollars, selling the debt across the world and then using that money to buy goods from other countries. This is a very interesting point IMO.

Obviously the dollar isn’t the only reserve currency, but you have to wonder what the future will hold for it. Crypto is obviously an interesting one and of course you have some people suggesting going back to gold or even a combination of the two. I realise both are highly unlikely but still very interesting!

I am just very curious on how it will all play out!

mcsean2163 · 11-12-2020 6:02pm

ice.cube wrote: »

Agreed it isn’t going anywhere anytime soon but do you think it will remain in place long term? The big question mark is on a suitable alternative as I stated earlier.

The Fed attempted to take their foot off the printing press pedal in 2019 however were unable to successfully do so. This year has obviously been unprecedented but for every $1 the government spends .50c is basically money created out of nothing. I would have doubts on how they can bring these massive deficits into line in the short to medium term.

Throw in the trade deficits and they are basically creating dollars, selling the debt across the world and then using that money to buy goods from other countries. This is a very interesting point IMO.

Obviously the dollar isn’t the only reserve currency, but you have to wonder what the future will hold for it. Crypto is obviously an interesting one and of course you have some people suggesting going back to gold or even a combination of the two. I realise both are highly unlikely but still very interesting!

I am just very curious on how it will all play out!

I'd like to stop it playing out in Ireland.

The numbers in the us look awful, https://www.weforum.org/agenda/2020/11/charting-america-united-states-debt/#:~:text=The American debt has ballooned,spent on healthcare and education.

I guess so what, nothing much I can do about it...

mcsean2163 · 13-12-2020 9:56pm

Cormac lucey in the times today talking about higher interest rates on the horizon. If that happens, we're goosed.

As Bowie said, we've got 5 years.

Geuze · 13-12-2020 10:58pm

It will help if we have locked in much of our debt at long-term low rates.

Then, if market rates rise, we aren't affected as much, although of course maturing debt has to be redeemed and replaced.

If we are still borrowing, running deficits, then that is worse.

mcsean2163 · 13-12-2020 11:29pm

Really interesting article discussing Andrew Mellon, Keynes and Friedman. Mellon opened the financial dam in 1920s and caused the great depression. There was an opportunity then to start again with a more equitable economic solution but then the baloney of Keynes digging holes and refilling them and inequality of Friedman followed. Since then to the dam has risen, holding back more and more financial devastation and now the us has a relative debt equivalent to world war 2 and growing.

Lucey points out this cannot continue forever and expects a collapse in five years.

If that dam breaks Ireland is one of the most exposed nations..... hopefully there won't be another famine.

mcsean2163 · 13-12-2020 11:32pm

I think we've already borrowed too much and are living on borrowed time and the potential future generosity of decision makers in the EU like Viktor Orban.

mcsean2163 · 08-03-2021 11:22pm

Highest debt per capita in Europe advertised in Irish Times

https://www.irishtimes.com/business/economy/ireland-to-have-highest-debt-per-head-in-europe-this-year-1.4503652

I think we're still third in the world?

FreudianSlippers · 09-03-2021 3:16pm

mcsean2163 wrote: »

I think we've already borrowed too much and are living on borrowed time and the potential future generosity of decision makers in the EU like Viktor Orban.

Current Hungarian Government 10Y bond is 2.835% so best of luck with that to them and Mr Orban going forward.

I think we'll be just fine at 0.018% 10Y.

Brussels Sprout · 10-03-2021 5:27pm

FreudianSlippers wrote: »

Current Hungarian Government 10Y bond is 2.835% so best of luck with that to them and Mr Orban going forward.

I think we'll be just fine at 0.018% 10Y.

I was wondering how that was so high given the ECB's been buying government bonds but then I realised that they never joined the Euro and are still on the Forint.

That gives Orban precisely zero say in any Eurozone policy. As an aside, his Fidesz party was effectively booted out of the EPP group last week.

Bit cynical · 12-03-2021 10:43pm

L1011 wrote: »

There is no figure if the ECB continues its support programmes.

It is like the game of musical chairs with the ECB controlling the music. Who will be nearest the chairs and be able to grab a seat? Who will be left standing after the music stops?

mcsean2163 · 13-03-2021 10:19pm

Bit cynical wrote: »

It is like the game of musical chairs with the ECB controlling the music. Who will be nearest the chairs and be able to grab a seat? Who will be left standing after the music stops?

Agree, we've spent the most on covid19 and have had the second strictest lockdown in the EU. Finland seems to have taken a much more balanced response to covid19 (150th strictest restrictions globally) and had a sixth of our deaths. They've had to pay for our banks, our public sector and now our extreme covid19 stance. We've rewarded them for their investment by offering multinationals a way of avoiding paying taxes in the EU.

Do people think we'll be allowed to be the most profligate nation in the EU forever? I think the s&&t will hit the fan by 2023 unless a miracle happens.

listermint · 13-03-2021 10:21pm

mcsean2163 wrote: »

Agree, we've spent the most on covid19 and have had the second strictest lockdown in the EU. Finland seems to have taken a much more balanced response to covid19 (150th strictest restrictions globally) and had a sixth of our deaths. They've had to pay for our banks, our public sector and now our extreme covid19 stance. We've rewarded them for their investment by offering multinationals a way of avoiding paying taxes in the EU.

Do people think we'll be allowed to be the most profligate nation in the EU forever? I think the s&&t will hit the fan by 2023 unless a miracle happens.

Finland are paying for our banks.

That's a new one. Go on.. I'm intrigued.

Deseras · 13-03-2021 10:23pm

Europe is printing money due to Covid soon there will be hyper inflation

Harry Palmr · 13-03-2021 11:26pm

Please explain and cite sources.

ice.cube · 14-03-2021 2:47pm

Deseras wrote: »

Europe is printing money due to Covid soon there will be hyper inflation

50% inflation per month is the widely accepted definition of hyper inflation.........you might explain your point a little better

How much can we borrow?

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